Hold Idea Cellular; target of Rs 115: Religare

Religare's research report on Idea CellularIdea reported a bumper Q4FY16 with 5.3% QoQ revenue growth led by strong voice revenues (+5.4% QoQ). Pricing improved for both voice and data offerings, but this had a negative impact on MOU (-1.5% QoQ) and data usage (-1.8% QoQ). Management indicated that voice price hikes were in new established sectors. Although this is a positive step, we have seen several false starts in terms of pricing – both Bharti and Vodafone would need to follow suit for Idea to sustain these hikes. We raise FY17/FY18 EBITDA estimates by 9% on margin upgrades. Our Mar’17 TP moves to Rs 115 (from Rs 100), set at 5.6x fwd EV/EBITDA. HOLD.We have been cautious on the sector and especially on Idea given rising capex, voice cannibalisation and the entry of R-Jio. With leaders still chasing volume growth, Idea’s strategy of pushing pricing could be to restrict the bleed in new circles and conserve cash. Bharti and Vodafone would need to follow suit for Idea to maintain these price hikes; voice elasticity too will restrict the extent of hikes. HOLD.We have been cautious on the sector and especially on Idea given rising capex, voice cannibalisation and the entry of R-Jio. With leaders still chasing volume growth, Idea’s strategy of pushing pricing could be to restrict the bleed in new circles and conserve cash. Bharti and Vodafone would need to follow suit for Idea to maintain these price hikes; voice elasticity too will restrict the extent of hikes. HOLD.

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